The influence of regulatory objectives on the intensity of unbundling in electricity markets

Abstract

The degree of separation between transmission networks and the remaining stages of the electricity value chain varies considerably within the European Union. Suggesting a possible explanation for this diversity by assuming a regulator that acts as in Niskanen's theory of bureaucracy, we show that in a multi-stage game the actual degree of unbundling is only determined by the weight attached to the objectives pursued by this authority. Hence, national regulators might exploit their discretionary powers to their own advantage. This might, in turn, decisively shape the deregulation process in European electricity markets and impede the development of a homogeneous regulatory environment across the EU.